2021 (3) TMI 1471 - HC - Income Tax

Madras HC Remands Case on Depreciation for SEZ Payments as Commercial Rights u/s 32, Requires Fresh Assessment.

M/s. Sundaram Fasteners Ltd., Versus The Additional Commissioner of Income Tax, Company Range-VI, Chennai

In the appeal under Section 260A of the Income Tax Act, 1961, the Madras HC addressed whether depreciation under Section 32 could be granted for payments ... Depreciation u/s 32 - amount paid to SEZ as it had acquired commercial right for the use of the land for the purpose of business of the Assessee - HELD THAT:- We find that this issue was not canvassed by the assessee before the Assessing Officer or the CIT(A) or for that matter at Tribunal and this is being raised as an alternate plea by the assessee. In fact, initially, the assessee had raised two substantial questions of law and the question on which this appeal was admitted was the 2nd question of law. So far as the 1 st question of law was whether the Tribunal was right in law in holding that the upfront amount of Rs.5,96,80,000/- paid to Mahindra World city in consideration for the grant of use of land is not deductible as revenue expenditure under Section 37 of the Act. This Court, having been satisfied that a issue arises for consideration in the assessee's case, is of the view that the matter should be remanded back to the AO for a decision to be taken on merits. Thus the matter stands remitted to the AO for a decision to be taken on merits and in accordance with law, after taking note of the submissions that the assessee may make before the Assessing Officer. The said issue was considered at the time of admission and by assigning reasons, the same was rejected and the appeal was admitted only on the aforementioned question of law. The judgment from the Madras High Court involves an appeal filed by the assessee under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal for the assessment year 2009-10. The primary legal question addressed was whether the Tribunal should have granted depreciation under Section 32 for the amount paid to SEZ, as it constituted a commercial right for the use of land for business purposes.The court noted that this issue was not raised by the assessee before the Assessing Officer, CIT(A), or the Tribunal, and was introduced as an alternate plea. Initially, two substantial questions of law were raised, but only the second was admitted for consideration. The first question, concerning whether the upfront payment to Mahindra World City was deductible as revenue expenditure under Section 37, was rejected at the time of admission.The appellant's counsel cited a decision from the Division Bench of the Madras High Court, while the respondent's counsel referred to a Supreme Court decision. However, the court determined that these precedents could not be considered due to the lack of foundational facts presented in the proper form to the Assessing Officer.Ultimately, the court concluded that the issue warranted consideration and remanded the matter back to the Assessing Officer for a decision on merits, while upholding the Tribunal's order to the extent indicated. The substantial question of law remains open, and the appeal is allowed to the extent of the remand, with no costs awarded.